The Myth of the Great Man in Business Strategy

James Kwak has a very good post up on J.C. Penney's choice of CEO. The key point is that the new CEO was the head of retail operations at Apple and J.C. Penney's sales have fallen based on his new strategy.

Kwak mentions two questions that most companies don't bother to ask when looking for an outside CEO:

There are two important questions they tend not to ask, however. First, was Apple successful because of Johnson, or was he just along for the ride? Yes, he was the main man behind the Apple Store (although, according to Walter Isaacson’s book, Steve Jobs was really the genius behind everything). But was the success of the Apple Store just a consequence of the success of the iPhone?

Second, even if Johnson was a major contributor to Apple’s success, how much of his abilities are transferable to and relevant to J.C. Penney? There’s a big difference between selling the most lusted-after products on the planet and selling commodities in second-rate malls. When someone has been successful in one context, how much information does that really give you about how he will perform in a new environment?

Based on these questions there are a couple of points I want to pick up.

Related to the first question companies rationally realize that picking the wrong strategy can be absolutely disastrous. A new CEO provides an opportunity for a new direction and new vision for the company.

The mistaken conclusion from this observation is twofold. First, the ability to pursue a strategy has much more to do with the long investment of the company in its personnel and internal organization than it does with the man at the top. This is the great man myth in action and is a major problem with American corporations which tend to be biased towards top management, leading to erosion of talent at the bottom and a need to promote people who have a strong comparative advantage in their current position but that need to be promoted to be retained due to wage differentials (someone being a spectacular salesman/programmer/administrator has nothing at all to do with whether they would be successful in a more senior position; different skill sets requiring different aptitudes; compressed pay scales at the bottom and exponentially increasing salaries above median income mean that specialization in front line positions is a career killer in most fields). We see this in frequent complaints about the inability of businesses to find skilled workers at lower levels (of course they're in short supply, we no longer invest in training them or with providing them with adequate wages) and with the disproportionate incomes going to top positions (this problem is present in non-profits as well, though there is the problem with non-teachable assets like social network connections for fundraising or for opening the door to large accounts).

What a Tragic Waste of Life

These stories always sound like something out of the dark ages to me. Are we really so barbaric as to condone this?

Fox News reports, with a more complete article at the St. Louis Post-Dispatch, that a 15 year old was killed in commission of a burglary by the homeowner. His 17 year old accomplice will be charged with murder because his accomplice was killed in commission of a burglary (what!?!?!).

The tragedy is that death and a murder charge are wildly disproportionate to a property crime. I was acquainted with several people that committed minor property crimes while I was a teenager. While I unsurprisingly fell out of touch with all these folks after high school, tools like Facebook have allowed me to assuage my curiosity about what happened later on. While none of these folks are going to be winning the Nobel Peace Prize, almost all of them have gone on to hold steady jobs and some have families. These two kids have both been robbed of this chance.

The real problem here is that I have never heard of a situation where a firearm actually seemed like the appropriate use of force. In these situations pepper spray, a taser, and a baseball bat or extendable night stick would have provided a more than sufficient deterrent. All a firearm adds is tragedy.

Probably linked to this, a second problem is a tendency in American culture to brand people permanently based on their actions. Instead of two dumb kids who would have otherwise gone on to hold (crappy) jobs and have families we tend to frame these individuals as criminals (there's probably a race element here as well, which I'll just note rather than go into more detail on). There's something sick about a culture that does this.

Ability or Social Institutions: Which Should be the Default Assumption?

The Economist has been publishing some very good posts on social mobility over the past week or so. One of them, however, Low mobility associated with inherited ability is no social tragedy, is problematic.

The author makes a claim about underlying mobility rates that I find plausible, though I have my doubts and it has at least hints of the Marxist notion of class which I've never completely agreed with:

If these estimates of social mobility were anywhere near correct as indicating true underlying rates of social mobility, then we would not find that the aristocrats of 1700 in Sweden are still overrepresented in all elite occupations of Sweden. Further, the more equal is income in a society, the less signal will income give of the true social status of families. In a society such as Sweden, where the difference in income between bus drivers and philosophy professors is modest, income tells us little about the social status of families. It is contaminated much more by random noise. Thus it will appear if we measure social status just by income that mobility is much greater in Sweden than in the USA, because in the USA income is a much better indicator of the true overall status of families.

 Then he makes a claim that I don't feel follows:

Many commentators automatically assume that low intergenerational mobility rates represent a social tragedy. I do not understand this reflexive wailing and beating of breasts in response to the finding of slow mobility rates. The fact that the social competence of children is highly predictable once we know the status of their parents, grandparents and great-grandparents is not a threat to the American Way of Life and the ideals of the open society.
The children of earlier elites will not succeed because they are born with a silver spoon in their mouth, and an automatic ticket to the Ivy League. They will succeed because they have inherited the talent, energy, drive, and resilience to overcome the many obstacles they will face in life. Life is still a struggle for all who hope to have economic and social success. It is just that we can predict who will be likely to possess the necessary characteristics from their ancestry.

There are several separate streams of evidence that make me sceptical of this claim. First of all, I've been reading both Sorkin's Too Big to Fail and The Romance of the Three Kingdoms. Something remarkable in each book is how many of the major players in each book place a high value on loyalty. While the characters in Romance at least have the excuse of Confucian morality as well as being only semi-historical the major players in Too Big To Fail lack these excuses, they're supposedly from a meritocratic society.

Missing the Point of Human Rights

Moral philosophy isn't exactly a strong point of mine, but I feel forced to react to what I see as a deeply wrong-headed post at the American Conservative. In it Paul Gottfried makes essentially two objections to the term human rights. The first is his annoyance with the idea that gay marriage is a human right. He then goes on to assert, " I’ve no idea how the Fourteenth Amendment can require the imposition of a marital practice that differs from how marriage was understood since the beginnings of human societies and up until a few years ago in this country."

There are a couple of problems with this. First, the Fourteenth Amendment doesn't have a whole hell of a lot to do with what current or past practices are, the notion of protected rights is that they exist independently of institutionalized practices and come prior to them. On a philosophical level ,it is irrelevant whether or not a practice has a long standing institutional history (in practice, of course, judges take institutional history into account, but this is irrelevant to the rationalization of a bill of rights distinct from public law).

Second,  there is no particular way that marriage was understood from the beginnings of human societies. There is a vast array of marital practices that have existed at various points in time in response to various social and material pressures. The form that marriage takes is simply a cultural adaptation to these circumstances. One need go no further than Wikipedia for a lengthy list of types of marriage (same-sex marriage is listed separately). This list probably isn't exhaustive (though I didn't read the Wikipedia article in depth, so can't be sure), since I didn't notice marriage like practices that existed among transvestites in southeast Asia, to name just one instance. This kind of appeal to authority greatly annoys me, it relies on a combination of ignorance and certitude that doesn't withstand a 30 second web search. Even within the Bible, we read frequently of non-traditional practices such as levirate marriage and incestuous marriage. Any notion of "traditional" marriage is completely arbitrary taking both an arbitrary beginning point and an arbitrary end point for an institution that has been in constant flux and change throughout history.

The Post Office and Government Inefficiency

Great post at Beat the Press about reporting on the US Post Office and how it has been crippled by Congressional interference. The key part is this:

Congress has put the Postal Service in an impossible situation. It has imposed restrictions, like the requirement that all assets in its pension and retiree health fund be invested in government bonds,that substantially raise its costs relative to competitors. It has also prohibited USPS from getting into new lines of business that take advantage of its resources in order to protect private sector companies from competition. However it still expects the USPS to be run at a profit.

It is things like this that have been causing my evolution from being sceptical of government in my younger days to increasingly being convinced that government is often, not only in some narrow cases, efficient. Why would the post office be hobbled this way unless our Congress critters feared it could out compete private industry? We frequently see the same sort of thing, but often made worse with the addition of private industry handouts, where government is hobbled from functioning properly to make way for private companies. In this case, at least, private industry does a pretty good job but just look at private industries like health care for where private industry is making a hash out of things.

I still hold to the idea that private markets are best as a first cut assumption, but it seems to me that exceptions make up a rather large minority of human activity. However, since we elect people that don't believe in government and set out to prove that government is inefficient, we often get inefficient government. Put people in power that believe in the ability of government to do good, and we are far more likely to get good government. The problems with the post office (or Amtrak*) don't arise from an inevitable feature of government management, they are rooted in the belief of the people responsible for them that government doesn't work and the consequences of their attempts to prove this true.

I don't really know what to do about this, since it is likely that a substantial number of people will be elected to Congress for the foreseeable future that hate government we're stuck with the bad management. But I can't help but be frustrated that we sacrifice our growth and prosperity for these beliefs (I should add that I recently moved and have been dealing with the utility companies; it's incredible the degree to which most government agencies have improved, licensing bureaus being the key exception, while gas and cable companies continue to be awful to work with).

*Amtrak's problems largely result from trying to treat them as profit making companies rather than public infrastructure. We don't complain about how inefficient trucking companies are because they don't pay the full costs of the roads they drive on and we treat roads generally as if they are free. However, rail transportation tends to have far less externalities than roads, as well as being more efficient at moving people along highly trafficked routes. But for some reason Amtrak is terrible, while the subsidies that public provision of roads supplies to auto manufacturers, trucking, and other logistics companies go unmentioned when Amtrak is being given a hard time.